Financially responsible and successful people don’t build their wealth by accident — or overnight. Becoming rich takes serious willpower and long-term vision. You have to be able to keep your eye on the prize of financial freedom and develop good habits to win. Here are 10 habits you can start putting into practice now.
As the old saying goes “the early bird catches the worm” or, in this case, gets to retire in style. The sooner you put your money to work, the more time it has to grow.
Think about this: Investing $10,000 and leaving it to grow for 40 years, with, say an average annual return of 8%, your nest egg will be worth over $217,000. By waiting 10 years and investing $20,000 — twice as much — your nest egg will be $17,000 less and you will have just over $200,000.
Whatever your situation, saving and investing now is better than waiting until tomorrow.
Out of sight, out of mind
You can be your own worst enemy when it comes to financial success. It’s easy to procrastinate and neglect what you need to do to achieve financial freedom. Giving into temptation and spending more than you should – it’s the perfect recipe for not achieving your financial goals.
The best way to protect yourself is to automate your savings – set up regular, recurring transfers from your salary to your savings, investment or Super Fund accounts. This way, you can avoid bad money habits, retrain yourself and save what you would likely otherwise spend. If you haven’t already, set aside 15 minutes on your calendar now to do it. Not later, now. Your financially free self will thank you in the future.
Maximise superannuation contributions
Next, think about your super contributions. Like most Australians, you’re probably only investing the standard contribution and nothing more. A small additional contribution is better than none. If you are concerned that additional contributions will squeeze your cash flow, remember, it is easier to get in the habit of spending less if you don’t have that extra money to spend in the first place. It’s much harder to scale back your budget year after year to accommodate increasing contributions.
Zero credit card balance
Revolving, high-interest debt is one of the biggest threats to your financial freedom. It can seriously drag you down, costing you thousands in unnecessary fees and interest charges — and prevent you from saving more. If you ever want to be rich, you have to ditch the bad habit of carrying credit card balances, along with the minimum payment mentality.
Instead, you need to learn how to use credit wisely, rather than as a crutch, and commit to paying off your balances in full each month. Smart credit card holders know and practice the tricks to maximise rewards, points, discounts and monthly cash flow without getting in over their head. Living within your means is key to financial freedom.
Live like you’re poor
Have you ever met someone who is unassuming and modest and then were surprised to later learn that they are actually rolling in dough? We had an older client who was stuck in 1983 – he wore ugly brown suits and running shoes, drove a beat-up baby blue Volvo station wagon and lived in the same modest house he bought 40 years ago. Turns out, this man was a successful entrepreneur and multimillionaire, and even richer because of his humble habits.
Millionaires are all around us. Many of them are probably not who you would think. They live below their means and save their money rather than spend it. Sure, it’s easy to live comfortably when you have millions, but remember, getting into the habit of spending less now will help you have a lot more later. The trick is adopting a “less is more” mentality and sticking with it, even when your income and net worth increase in the future.
The temptation to live large and beyond our means is all around us: TV, magazines, friends, family, colleagues, “the Joneses.” It is nearly impossible to escape the pressure to spend, spend, spend. Overspending often leads to debt, no savings, long-term financial insecurity and worry.
Force yourself to avoid negative financial influences as much as possible go cold turkey. Avoid malls, unsubscribe retail emails, don’t sign up for new ones and say “no” to invitations that will cost you money.
Replace these temptations with goals that motivate you.
Goals inspire us, motivate us and give us purpose. Many of us have common goals, such as paying off debt, buying a house and retiring by a certain age. Goals can be overshadowed by the daily stresses of life, too often forgotten and neglected. When goals are just fleeting thoughts in your mind, they lose meaning and influence over your behaviour. This leads to bad financial habits, and your dream of becoming financially independent stays a dream.
To make your goals reality, stay focused by committing time to think, prioritise and target saving an amount for each. A visual of your target goal can be a positive and powerful reminder of your target goal. If you’re more tech oriented, there are several apps available to help track progress towards your goal.
Successful investors take the time to study key financial concepts, learn do’s and don’ts and stay abreast of current trends. They take advantage of opportunities to strengthen and expand their understanding and expose themselves to financial information on a daily basis. Become a devoted student of money and you can master the science of financial freedom.
Diversify your portfolio
Be careful not to overwhelm yourself and only follow advice from credible sources, so you don’t fall victim to progress paralysis or unsuitable and potentially dangerous investments.
Successful investors also know not to put all of their money eggs in one basket—or two baskets, for that matter. They spread their wealth across a variety of investments, from shares, managed funds, bonds, to real estate and collectables. A diversified portfolio means that you can potentially take advantage of multiple sources of growth and protect yourself from financial ruin if one of your investments bombs.
An easy way to achieve diversification is to invest in managed funds based on your risk tolerance.
Spend money to make money
The best way to protect yourself and get a step up on your financial goals is to invest in a team of professionals. This means hiring a qualified and experienced financial adviser, accountant and in complex cases, an estate lawyer. Yes, working with professionals will cost you, and you can still do some DIY investing, but their objectivity, expertise, personalised guidance and ongoing monitoring can be well worth it (and relieve you of the huge burden of figuring it all out on your own).
Make sure that you interview several candidates so you can find professionals you trust, feel comfortable with and whose approach is a good fit for your situation. And even if you work with an adviser, make sure that you’re still involved and aware of where your money is going — and why.[/vc_column_text][/vc_column][vc_column width=”1/3″][vc_column_text]